Mar. 10, 2008 – Key to getting higher margins
March 10, 2008
Filed under Features
By Matt Bolch
Accurately calculating margins can be a tricky business, says Robert Kay, president of Star City Motor Sports, but knowing how the math works can help a dealership thrive.
His Lincoln, Neb., dealership made a 15 percent margin on the 250-plus ATVs it sold last year, higher than the 13 percent average margin reported by dealers who responded to a recent Powersports Business national survey. But Kay’s margin could be even higher than the average, depending on how dealers figure their margins.
Star City takes into account the actual cash value of trade-ins and the internal costs of set-up and predelivery when determining margins. “It’s a more accurate way to look at the dealership,” said Kay, who charges the sales department a $105 flat fee against the sales price of each ATV. “If a tech is doing work for the sales department, he’s not charging his labor rate to a consumer.”
When it comes to selling the units, the dealership holds the line on price and fees for freight, set up and dock charges whenever possible, using the four-square selling system. The four major components of any sales negotiation are price, down payment, trade-in and monthly payment. Kay says the buyer likely will seize on one of those components, and the dealership can make a deal work to the buyer’s satisfaction by working within the four squares to help close the deal while maintaining margins.
“How do we get a higher price? We ask for it,” said Joe Morabito, owner of Sunwest Xpress in Bullhead City, Ariz. The dealership sold 550-plus Can-Am, Polaris and Kawasaki ATVs last year, with an average gross margin of 17.2 percent. “We get full MSRP, plus freight and prep.
“People who don’t think (the price) is fair can go elsewhere,” Morabito said. “I don’t mean to sound snobbish, but we hold the line on prices, and if the customer wants the unit, they pay the freight.”
Morabito says at the last meeting of his Spader Business Management 20 group, no other dealer was making more than a 12 percent margin.
Sunwest Xpress has a 5,000-square-foot facility in a town of 40,000 near Arizona’s western border with Nevada and California. Looking on a map, Bullhead City would not appear to be a hot spot for powersports, but Morabito predicts he’ll sell 1,000 units this year, fueled partly by a robust number of referrals.
The keys to success are to be open and honest about your merchandise and your need to make a profit, he notes. While the dealership does hold firm on its prices for the most part, salespeople do have leeway to drop prices by up to 10 percent, much less than the 40-50 percent that other dealers do, the owner says. But the dealership also doesn’t charge above MSRP for vehicles in high demand.
Morabito says the showroom is kept in sparkling condition, and buyers are introduced to staff in the parts and service departments as part of the sales process.
“Our store looks nice, and our staff is professional, which gives buyers a good feeling about the dealership and buying from us,” Morabito says. “In addition to the ATV sale, if we don’t sell another $500-$1,000 in accessories at the same time, we haven’t done our job.”
John Jamison, owner and president of Arkport Cycles, has built a business with 45 employees during a four-decade stint in Arkport, N.Y., which has a population of fewer than 900. The dealer’s long standing in the community and his vast experience allows Arkport Cycles to get an 18 percent gross margin on the Suzuki, Yamaha and Honda ATVs it sells, Jamison says .
“We try to learn from our mistakes and try to make a little money,” Jamison said. “I’ve done the Chinese (ATVs) in the past, but I wound up hating myself a couple of times.”
Beartooth Kawasaki also boasts an 18 percent gross margin, which owner Jim Kujala attributes to fixed prices and honesty.
“We don’t add prep and set-up fees and haven’t in our 11-year history,” Kujala said of the dealership in Red Lodge, Mont. “I was in the car business previously, and I believe adding freight and other fees invites people to haggle.”
With the Internet revolution, most customers already have done their homework on the ATV they want to buy and have a good idea what they’ll be paying for it, Kujala said. The dealership is located in a rural area and offers free pickup and delivery within a 100-mile radius, adding value to the sale of any unit.
“Nine out of the 10 people I wait on never ask about price because they already know they’re getting a good price,” Kujala says. “I know 95 percent of other dealers don’t price like I do, but I believe that offering a fair price on the front end benefits everybody.”
Paying close attention to OEM incentives and managing inventory effectively help Family Powersports keep margins above 15 percent, says John Justice, general sales manager. Based in Lubbock, Texas, the dealership sold 455 Honda, Kawasaki, BRP, KYMCO and E-ton ATVs in 2007.
“Our margins have been fairly stable,” Justice said. “We do what we can to take care of the customer, and our service department stands out.”
Kay at Star City Motor Sports believes in the power of 20 clubs to help neophyte dealers and veterans learn best practices. The dealership’s net profit is 9 percent, which Kay believes is much better than powersports industry averages.
Keeping gross profit margins high on all products sold is an important component of overall profitability, Kay says.
“I’m becoming more and more frustrated with competitors when they go straight to price,” Kay said. “They’re almost apologizing for making a profit.”